What is statistical arbitrage?

Statistical arbitrage refers to a type of quantitative trading strategy that uses mathematical models and statistical methods to identify and exploit short-term mispricings or inefficiencies in the financial markets. Traders analyze historical price data, correlations, and patterns to make predictions about future price movements, often executing high-frequency trades across multiple securities. The goal is to profit from temporary price divergences that are expected to revert to their historical relationships. Statistical arbitrage is commonly used by hedge funds and proprietary trading firms, and it typically requires sophisticated technology and strong programming skills.